Sci Fi Or Suggested Financial?

Suggestion #5: Avoid a crisis caused by "just-in-time"

Those who brought us the Financial Implosion have set the stage for another, worse calamity.  We must act to prevent a similar disaster in the Real Economy -- that could affect manufacturing, commerce and possibly survival -- exacerbated by a dangerous over-reliance on “just in time.”

To be clear, I am not talking about the plight of the U.S. auto-makers, who are near collapse because of inefficiency, bad management, and failures of imagination by both owners and workers. Nor do I refer to the painful-but-expected retrenchment and layoffs we’re seeing in many industries.  These are worrisome, but there is another problem looming on the horizon -- one that may hammer even competent enterprises, that imagine they are healthy enough to weather the storm.

I refer to a brittle weakness in our economy, courtesy of the same smartaleck caste of MBAs who brought us derivatives and hyper-leveraged finance.  A frailty that could, potentially, turn some short-term crisis into full-scale disaster -- and all because of a good theory that’s been taken way too far.


Another trick of “optimization”

For decades, we’ve been told -- by the same fellows who brought us “efficient finance” -- that manufacturing and commerce should be fine-tuned to squeeze every penny of profit, by trimming away all “fat.” Industries that hew close to the teachings of W. Edwards Deming and Toyota’s Taichi Ohno require that their suppliers deliver parts and raw materials at the precise moment when they are needed.  Under this principle, any reserves that are kept on-premises will only encourage sloppy management and incur unnecessary storage costs -- a calculation that has long been exacerbated by shortsighted tax policies that punish warehousing and inventory-keeping.

This approach, called “Just-In-Time,” is based upon the very same postulate that led the business-major types to bet our economic farm on arcane financial instruments, leading to catastrophic failure, in 2007 and 2008.  A wholly unjustified wager that the economy and its supporting systems will always remain stable and never experience disruption.  

Of course, this was just another expression of the basic concept underlying America’s vaunted way-of-life -- thinking only for today, spending all we had, with the lowest savings rate in the industrial world, while assuming tomorrow will always be kind. The freighters will keep bustling into our ports while foreigners continue to buy our debts.  Trucks and trains will keep delivering everything where it needs to go, with perfect, computer-controlled precision.

Our ancestors’ age-old wisdom of putting a little aside for just-in-case robustness has been replaced by a delusion of just-in-time efficiency, based on a belief in perfectly reliable global interdependence.

But, in real life, animals - even efficient ones - carry fat reserves. Surprises and disruptions happen. And when they do, we worry less about tweaking widgets-per second, and more about survival.

http://davidbrin.blogspot.com/